On Software and Game Copyright and Second Hand sales.

This morning I got into a little twitter spat with a local game developer Matt Johnston. Basically he is arguing against companies like GameStop because they do not provide any revenue back to the original developers of the game. As he is a game developer, he is very obviously on the side of the games companies.

Matt made a blog article and very nicely quoted me in the article – one of the tweets during the to-and-fro conversation. Well as much as 140 characters allows.

Matt makes several points, one of which is that if we allow* a second hand market, then DRM will happen; and we don’t want DRM, so we shouldn’t have a second hand market.

(* note that it is not the right of the games companies to allow or ban it in the first place).

DRM is a red herring and not at the heart of the issue. DRM may be the games companies answer to the problem it perceives – but at the end of the day, DRM only hurts those people who actually pay for the game.

I could go onto many underground sites and find the latest games “for free”. Who wins there?

I don’t as I do believe the game should be paid for. I have a large collection of both Wii originals, and a large Steam archive.

Having said that, morally, I have a real objection to the games companies thinking they can ride roughshod over consumer rights and long established principles and doctrine of first sale.

The second hand market is both legal in the physical works *and* in the digital world. And thankfully we now have case law to back this up.

Last month, in the EU, Oracle lost a case (Oracle vs UsedSoft) trying to prevent resale of licenses to its software.

The court wrote:
“A rightholder who has marketed a copy in the territory of a Member State of the EU thus loses the right to rely on his monopoly of exploitation in order to oppose the resale of that copy.”

Further, Oracle, and Matt here, opposes further distribution based on licensing terms. The court also rejected this view, thus:
‘The principle of exhaustion of the distribution right applies not only where the copyright holder markets copies of his software on a material medium (CD-ROM or DVD) but also where he distributes them by means of downloads from his website. Where the copyright holder makes available to his customer a copy – tangible or intangible – and at the same time concludes, in return form payment of a fee, a licence agreement granting the customer the right to use that copy for an unlimited period, that rightholder sells the copy to the customer and thus exhausts his exclusive distribution right. Such a transaction involves a transfer of the right of ownership of the copy.
‘Therefore, even if the licence agreement prohibits a further transfer, the rightholder can no longer oppose the resale of that copy.’

15 Replies to “On Software and Game Copyright and Second Hand sales.”

I also agree. If I were a game company, I can’t say I wouldn’t be trying to either A. Rake in funds from second-hand sales, or B. Stop second-hand sales from occurring, because obviously that’s money I’d LIKE to have. However, it’s how everything in the world works; I buy a new car, then sell it used – nothing back to the manufacturer. I buy a new cell phone, then sell it used, nothing back. I buy a new bicycle, sell it used – nothing back to specialized. Once you purchase a product, it’s yours.

If software companies have a problem with this, they need to distribute their licenses digitally – just like Steam does. You can’t sell a Steam game to your buddy, and you can’t trade it in for store credit at GameStop. Steam figured it out…

I also agree. If I were a game company, I can’t say I wouldn’t be trying to either A. Rake in funds from second-hand sales, or B. Stop second-hand sales from occurring, because obviously that’s money I’d LIKE to have. However, it’s how everything in the world works; I buy a new car, then sell it used – nothing back to the manufacturer. I buy a new cell phone, then sell it used, nothing back. I buy a new bicycle, sell it used – nothing back to specialized. Once you purchase a product, it’s yours.

If software companies have a problem with this, they need to distribute their licenses digitally – just like Steam does. You can’t sell a Steam game to your buddy, and you can’t trade it in for store credit at GameStop. Steam figured it out…

I also agree. If I were a game company, I can’t say I wouldn’t be trying to either A. Rake in funds from second-hand sales, or B. Stop second-hand sales from occurring, because obviously that’s money I’d LIKE to have. However, it’s how everything in the world works; I buy a new car, then sell it used – nothing back to the manufacturer. I buy a new cell phone, then sell it used, nothing back. I buy a new bicycle, sell it used – nothing back to specialized. Once you purchase a product, it’s yours.

If software companies have a problem with this, they need to distribute their licenses digitally – just like Steam does. You can’t sell a Steam game to your buddy, and you can’t trade it in for store credit at GameStop. Steam figured it out…

I also agree. If I were a game company, I can’t say I wouldn’t be trying to either A. Rake in funds from second-hand sales, or B. Stop second-hand sales from occurring, because obviously that’s money I’d LIKE to have. However, it’s how everything in the world works; I buy a new car, then sell it used – nothing back to the manufacturer. I buy a new cell phone, then sell it used, nothing back. I buy a new bicycle, sell it used – nothing back to specialized. Once you purchase a product, it’s yours.

If software companies have a problem with this, they need to distribute their licenses digitally – just like Steam does. You can’t sell a Steam game to your buddy, and you can’t trade it in for store credit at GameStop. Steam figured it out…

What’s different about the digital medium and the doctrine of first sale is the fact that the aging of the item is much less obvious and thus in some cases second hand sales are directly competing with and are as good as first hand sales. Added to the fact that there is no geographic isolation. Then, if your item is not something to be used continuously but a one-shot solution (eg. something that cleans up a specific virus or o monthly magazine) then there is now no incentive to build any such items because after you sell the first 100, those could be used by 1000+ people. Lacking this incentive, it’s hard to determine why anyone would go through the large initial cost of building these items if they won’t generate enough to recoup the costs.

I think the lack of depreciation due to age is a poor argument; if anything it creates incentive to continuously output new versions and satisfy customer requests in your software.

If I decide I want to buy a “used license” for Adobe Photoshop 7.0, I’m of the understanding it lacks a lot of features that newer versions have, as well as the fact that it is less performant, and may not even run on my operating system anymore. Software ages just like anything else, but not in the same sense as a physical item. Software doesn’t deteriorate, the usefulness of it deteriorates as other software is created.

The car analogy still applies here. Car models are updated every 3-5 or so years. This is not only to “keep up” with visual trends and styles, but it’s also to keep consumers buying new vehicles. Cars deteriorate and depreciate in value, but without the model style upgrades and feature enhancements, there’d be nearly no incentive to purchase a brand new vehicle. A used vehicle would have a cheaper total ownership cost, considering the vast availability of parts to repair the vehicle due to not changing anything for the long period.

This kind of digressed a little more than I wanted; but my point is – software manufacturers’ issues are mainly distribution, and that they’re looking for a way to make more money off something without creating more value. People have been conditioned to pay a certain amount of money for a video game (and software), so raising the prices is pretty out of the question. The budgets for these games is huge, and they take a long time to build – I can understand the desire to get more money; I Just think the companies need to either a: fix the distribution problem, or b: add more value to justify a higher cost.

I’m not arguing one way or the other, and I agree that proper distribution a-la steam does help. I disagree with the “it creates incentive to continuously output new versions and satisfy customer requests in your software” part. Isn’t that exactly what you were against? Creating small and frequent updates to break things in old versions or knowingly deprive them of features is just the sort of behavior that doesn’t “add value” like you criticize.

I love my text editor, vim, and I use it for at least 2-3 hours per day. I’d have paid for it. The last update to it was done in 2010, and it works great.

My first point is that if the authors had chosen to make this paid software, do you think a release cycle of 2+ years would have made them a living? No. They’d have decided to spread the fixes / features out to increase the number of releases and maximize profit.

The second one is that I could have used 7.0 (came out 6 years ago) and would have been equally happy. The new features are convenient but not super necessary. I got the update because it’s free, but I could have used the old one, just like I’m quite content with windows vista with the bugpatches or office 2003 or ubuntu 9.x. Utilitarian people who don’t care about having the latest version and want the damn thing to just work (the non-vocal majority) won’t upgrade until they’re unhappy. Which happens more often because the developer knowingly broke compatibility to force a change rather than the fact that the new version has a killer feature that the user needs.

To add to that, there is also a related incentive to sell software before it’s fully stable or feature complete because it still makes a profit and can make even more in subsequent updates. Ugh. (i.e. make a 5 hour game, sell it for a bit less than a 60 hour game, make more content and sell it in DLCs)

I only think people upgrade windows when they get new computers. That’s a guess, and obviously not completely true – but for the vast (silent) majority, I believe it’s the case.

Software like VIM would be difficult, I’ll concede that; but I assume MacroMates will force people to buy Textmate2 even if they own Textmate. Is that release cycle acceptable for a company? not really, it’s been years between major versions – but then again, people complain immensely about the lack of turn around time on TM2.

Anti-virus software, users typically have to pay for ongoing anti-virus definition updates. I don’t pay for AV software, but I think that model makes sense there.

Microsoft Office products introduce new features and performance upgrades between versions. People don’t upgrade Office until the version they have no longer works with their version of Windows. Again, this is a hunch – I don’t have real information to back this up. If I can sell my 5 year old office license to my neighbor for $50, and it works for him, that’s good for me I think. When it comes to purchases like that, people will only spend the money if it’s in their budget and they really need it. Who goes to the store saying “I can’t wait to get the new version of Office, it’s going to be AWESOME!” It’s arguable on whether me selling my license to my neighbor would be a “lost sale” for Microsoft; I could have just as easily told my neighbor to download Open Office, right?

Games, aside from multi-player play, how many patches/updates come down to a user? Not many, and only if it really affects the gameplay. Even multiplayer patches on console games only really happen during the “lifetime” of the game, that is – until the next version comes out, or sales for the game dip to the point that it doesn’t make sense financially to spend money fixing/adding features.

Console game developers, I think, are the biggest noise makers here. The second-hand game market is huge, and they (understandably) want a cut. I think for online play, where they have an ongoing cost, it makes sense that they get some cash – and they have basically figured this out. EA games come with a 15-20 character code that gives you access to online play, without it – you get single player only. I think that’s completely fair. That way, when the game gets sold back to GameStop and eventually another gamer, that gamer has to pony up another $10 (fair price) to play online.

Subscription games obviously don’t have this problem…

Steam games don’t transfer hands, so the digital distribution works there. This solution can’t be implemented for every type of software; but it is being implemented in terms of the Mac App store, and the new MS App store that will ship with Windows 8. The issue with this solution is that the cost-per-unit will have to drop significantly (so will cost to the manufacturer due to not having distribution costs related to physical media) because of how users are being conditioned to buy this software with the iOS app store, the Android Play market, etc.

To your point about DLC; I think skimping on the content on the initial sale of the game and offloading it onto DLC is crappy. Homefront did this, and I didn’t download any of the DLC. the COD/BF franchises are obviously the biggest DLC vendors right now, and I think their approach is good.

Ultimately, people will dictate what the companies can get away with – with their dollars. Unfortunately, the people spending the dollars here are not the people that make the financial decisions. Children make up a lot of the console game market, and they’re spending their parents money with no regard as to what for or any consideration for what kind of value they’re getting.

Parents hold the purse strings, and unfortunately in our society parents are using video games as baby sitters; so if their kids complain enough they’ll get what they want.

Thanks guys. I agree with most of your comments.
However to Jim’s point about Steam. The case law here in the EU basically voids the argument that digital licenses are non transferable. Therefore, when the EU comes to look at Steam (from a Competition, or restraint of trade perspective), Steam will lose; and lose hard.
Steam, this week, also changed its User Agreement, basically forcing all its users to agree not to sue it. In the EU – this will be thrown out as an Unfair Contract (voiding only that part of the T&Cs) – so it will have no protection on that front either.
Now we just need some case law in the US to further reinforce this basic commercial and property right.
I guess we await the outcome of the Redigi case: http://www.out-law.com/en/articles/2012/february/second-hand-music-files-trader-avoids-injunction-as-copyright-case-moves-to-full-trial/
Although the article notes a UK lawyer who claims it would be illegal in the UK; that merely highlights that UK copyright law is not in line with EU and the UK would lose in a straight up fight on that front.